How does it fit within the ideas of Hayek and Keynes? Use the stagflation of the 70s as an example. The post–World War II the postwar economic boom, also known as economic expansion, the long boom, and the Golden Age of Capitalism, and the Age of Keynes in western countries after the end of World War II in 1945. It was a high worldwide economic growth in Western European that had been devastated by the war such as unusually high and sustained growth, together with full employment.
By the end of World War II, much of Europe was devastated. The region’s trade flows had been disrupted. Food shortages were severe in all over the Europe. The 1930’s Great Depression in Europe production had fallen far below even than usual for the entire decade due to failure of market forces to restore demand to normal levels. Hence, the biggest panic after WWII was the return of the Great Depression during 30s. After the war, the major powers were determined not to repeat the mistakes of the Great Depression.
Governments might have been slow to dismantle wartime allocation controls, and so have severely constrained the market mechanism. However, Politicians were predisposed toward intervention and regulation, their principle was: no matter how damaging “government failure” might be to the economy, it had to be better than the “market failure” of the Depression. After WWII, the slightest regulations and policies are derived from The Keynesian Economy. Keynesian economists claim that the boom was caused by the adoption of Keynesian economic policies, particularly government spending.
The basic idea of Keynesian thinking was to have pure free market policies rather than the mixed economy which require a significant role for government intervention. Efforts against Keynesianism took place on three fronts – in the academic world, in politics, and in the wider world of business and public opinion. In Keynes’s theory, in contrast to the previously accepted view, an economic depression might continue indefinitely unless government spending, financed by a budget deficit, were increased sufficiently.
In 1948 the Marshall Plan was implemented to rebuild and modernize Western Europe. The Coal and Steel Community had which was to become the European Union lately. The Marshall Plan (officially the European Recovery Program, ERP) was a program occurred in United States to aid Europe as the US. gives monetary support to help rebuild European economies after the end of WWII in order to have a force over Soviet communism. The plan was for four years. The goals of the Marshall Plan were to remove trade barriers, modernize industry, and provide Europe to be strong again.
Plan pumped over $12 billion to rebuild and modernize Western Europe. Keynesian economics period also accepted as financial repression. With these Keynesian policies such as low nominal interest rates and low or negative real interest rates and government policy, especially the US and UK both dealt with their existing government debt level from Great Depression and World War II and reduce the level of debt in the debt service without needing to direct a high portion of government spending. All of the success was coming from free market economies.
After the death of President Roosevelt, a conservative control of Congress took place and try to turn the policies into Libertarian policies by rejecting numerous Keynesian initiatives, dropped many price controls, and instead cut taxes sharply. These libertarian policies are believed to have been stimulated the economy and created near full employment. During the whole period, especially Hayek was against Keynes at some points. He and a group occurred from other journalists and intellectuals had planned to displace Keynesianism and other collectivist influences.
Hayek complained about economists to refuse to allow his work to be questioned after his death, it almost became a tabu. According to Friedrich von Hayek, the development of welfare socialism after World War II undermined freedom and would lead western democracies inexorably to some form of state-run serfdom so that socialism was also affecting Europe negatively. For the institutions Bretton Woods system was used after WWII until 1970s. The Bretton Woods system was history’s first example of a fully negotiated monetary order.
It is an international regime which was designed to combine binding legal obligations with multilateral decision-making, which is conducted through an international organization, like the IMF, endowing money with some limited supranational authority. In 1971, The Bretton Woods system collapsed due to President Richard Nixon’s severed the link between the dollar and gold. Another policy which is used after WWII was Military Keynesianism, which sighted to devote a large amount of money spending to the military to increase the economical growth of the countries.